Countdown to the Announcement of 'Real Estate PF Normalization Plan'... Final Detailed Adjustments Underway

Financial Authorities Likely to Announce Normalization Plan as Early as Second Week of May
New Funding 'Incentives' for Normal PF Projects... Prompt Auction Encouragement for Distressed PF Projects
Lee Bok-hyun Emphasizes "Prolonged High Interest Rates May Delay PF Restructuring"

The financial authorities, who are preparing normalization measures for the soft landing of real estate project financing (PF), are accelerating consultations by industry sector with the goal of announcing the plan in the second week of May. Having largely completed preliminary procedures such as issuing non-action opinions for smooth restructuring of real estate PF projects and conducting face-to-face meetings by sector, the financial authorities are focusing on final detailed adjustments to ensure the measures operate smoothly.

According to the financial sector on the 3rd, the financial authorities, in cooperation with related ministries including the Ministry of Land, Infrastructure and Transport, are speeding up consultations by ministry and institution with the aim of announcing the 'Real Estate PF Normalization Plan' as early as next week. On the 2nd, Lee Bok-hyun, Governor of the Financial Supervisory Service, also emphasized at a financial listing inspection meeting that "Considering the growing concerns over prolonged high interest rates, delaying PF restructuring could be burdensome, so it is necessary to promote a swift and orderly soft landing," and urged active preparation for any contingencies following the announcement of the normalization plan.

The upcoming real estate PF normalization plan will focus on the rapid resolution of distressed projects and the prompt injection of funds into healthy projects. It is also expected to include plans to strengthen PF project viability evaluation criteria to prevent the spread of a 'systemic crisis' in advance.

The financial authorities plan to provide incentives to financial institutions such as banks and insurance companies that inject new funds into healthy PF projects. This will involve easing criteria so that when acquiring PF bonds classified as 'normal' for viable projects, the financial institutions will not bear undue burdens. For banks, it is also reported that there will be a temporary relaxation of securities investment limits.

Distressed PF projects will be restructured swiftly. The current three-tier PF project viability evaluation criteria?'Good (normal in asset soundness classification) - Average (watchlist) - Deterioration concern (substandard or below)'?will add a 'Recovery Doubtful' stage to promote auctions and forced sales. Projects classified as 'Recovery Doubtful' will be required to set aside provisions of 75-90%, incentivizing resolution through auction and forced sale markets.

The conditions for loan maturity extensions will also be tightened. The financial authorities are considering raising the approval threshold for maturity extensions, which currently requires two-thirds consent under the PF lender consortium agreement, to 75% (three-fourths). If more than one-fourth oppose, making maturity extension difficult, the project will naturally proceed to auction or forced sale.

Meanwhile, in line with the financial authorities' announcement of the real estate PF normalization plan, savings banks and the credit finance sector will establish and operate normalization funds. The financial sector expects these funds to support restructuring efforts. The Korea Federation of Savings Banks is forming a second normalization fund worth 164 billion KRW with participation from 18 savings banks, and the Credit Finance Association is also pushing to establish a fund worth 200 billion KRW.